Tuesday, December 09, 2008

Money Flow Lagging the Stock Market Rally

Above we see that cumulative money flow for the Dow Industrial stocks (top chart; pink line) has not been making new highs, even as the Dow (DIA; blue line) has moved to a 20-day closing high. (For an explanation of money flow, see my previous post on the topic). Monday's flow reading of +$437 million was clearly strong, and that strength was underscored by the tally of stocks making fresh 20-day highs vs. lows (1394 highs vs. 343 lows). (Note: both money flow and new highs/lows are posted prior to each trading day via Twitter). The question, however, is whether strength can attract further buying to sustain an intermediate-term rally.

As we see from the chart of the Dow vs. the four-day moving average of money flow (bottom chart), forays into positive flow territory have tended to be brief since early October. The good news for bulls is that the November lows, both in price and cumulative flow, have held on last week's weakness. If we can sustain positive flow numbers from here, it would represent the first uptrend in flow since the start of the market's decline. A return to outflow numbers would lead me to expect a return to recent rangebound action.